3. Revenue

6 Months Ended

Jun. 30, 2019

Revenues [Abstract]

Revenue

Revenue is measured based on a consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. The following is a description of principal activities – separated by reportable segments – from which the Company generates its revenue. For more detailed information about reportable segments, see Note 13.

Cloud Telecommunications Segment

Products and services may be sold separately or in bundled packages. The typical length of a contract for service is thirty-six to sixty months. Customers are billed for these services on a monthly basis. For bundled packages, the Company accounts for individual products and services separately if they are distinct – i.e. if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between separate products and services in a bundle based on their relative stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the desktop devices and telecommunication services. For items that are not sold separately (e.g. additional features) the Company estimates stand-alone selling prices using the adjusted market assessment approach. When we provide a free trial period, we do not begin to recognize recurring revenue until the trial period has ended and the customer has been billed for the services.

Desktop Devices - Revenue generated from the sale of telecommunications equipment (desktop devices) is recognized when the customer takes possession of the devices and the cloud telecommunications services begin. The Company typically bills and collects the fees for the equipment upon entering into a contract with a customer. Cash receipts are recorded as a contract liability until implementation is complete and the services begin.

Equipment Financing Revenue - Fees generated from renting our cloud telecommunication equipment (IP or cloud telephone desktop devices) through leasing contracts are recognized as revenue based on whether the lease qualifies as an operating lease or sales-type lease. The two primary accounting provisions which we use to classify transactions as sales-type or operating leases are: 1) lease term to determine if it is equal to or greater than 75% of the economic life of the equipment and 2) the present value of the minimum lease payments to determine if they are equal to or greater than 90% of the fair market value of the equipment at the inception of the lease. The economic life of most of our products is estimated to be three years, since this represents the most frequent contractual lease term for our products, and there is no residual value for used equipment. Residual values, if any, are established at the lease inception using estimates of fair value at the end of the lease term. The vast majority of our leases that qualify as sales-type leases are non-cancelable and include cancellation penalties approximately equal to the full value of the lease receivables. Leases that do not meet the criteria for sales-type lease accounting are accounted for as operating leases. Revenue from sales-type leases is recognized upon installation and the interest portion is deferred and recognized as earned. Revenue from operating leases in recognized ratably over the applicable service period.

Cloud Telecommunications Services - Telecommunication services include voice, data, and collaboration software. The Company recognizes revenue as services are provided in service revenue. Telecommunications services are billed and paid on a monthly basis.

Broadband Internet Access – Fees generated from reselling broadband Internet access are recognized as revenue net of the costs charged by the third-party service providers. Broadband Internet access services are billed and paid on a monthly basis.

Professional Services Revenue – Professional services revenue includes activation fees and any professional installation services. Installation services are recognized as revenue when the services are completed. The Company generally allocates a portion of the activation fees to the desktop devices, which is recognized at the time of the installation or customer acceptance, and a portion to the service, which is recognized over the contract term using the straight-line method. Our telecommunications services contracts typically have a term of thirty-six to sixty months.

Commission Revenue - We have affiliate agreements with third-party entities that are resellers of satellite television services and Internet service providers. We receive commissions when the services are bundled with our offerings and we recognize commission revenue when received.

Web Services Segment

Website Hosting Service – Fees generated from hosting customer websites are recognized as revenue as the services are provided in service revenue. Website hosting services are billed and collected on a monthly basis.

Professional Website Management Service and Other– Fees generated from reselling professional website management services are recognized as revenue net of the costs charged by the third-party service providers. Professional website management services are billed and paid on a monthly basis.

Disaggregation of Revenue

In the following table, revenue is disaggregated by primary major product line, and timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue with the reportable segments.

Three Months Ended June 30, 2019
(In thousands)
	Cloud Telecommunications Segment		Web Services Segment		Total Reportable Segments
Major products/services lines
Desktop devices	$	467	$	-	$	467
Equipment financing revenue		27		-		27
Telecommunications services		2,629		-		2,629
Fees, commissions, and other, recognized over time		208		-		208
One time fees, commissions and other		118		-		118
Website hosting services		-		152		152
Website management services and other		-		13		13
	$	3,449	$	165	$	3,614
Timing of revenue recognition
Products and fees recognized at a point in time	$	585	$	-	$	585
Services and fees transferred over time		2,864		165		3,029
	$	3,449	$	165	$	3,614

Three Months Ended June 30, 2018
(In thousands)
	Cloud Telecommunications Segment		Web Services Segment		Total Reportable Segments
Major products/services lines
Desktop devices	$	437	$	-	$	437
Equipment financing revenue		28		-		28
Telecommunications services		2,127		-		2,127
Fees, commissions, and other, recognized over time		149		-		149
One time fees, commissions and other		28		-		28
Website hosting services		-		181		181
Website management services and other		-		27		27
	$	2,769	$	208	$	2,977
Timing of revenue recognition
Products and fees recognized at a point in time	$	465	$	-	$	465
Services and fees transferred over time		2,304		208		2,512
	$	2,769	$	208	$	2,977

Six Months Ended June 30, 2019
(In thousands)
	Cloud Telecommunications Segment		Web Services Segment		Total Reportable Segments
Major products/services lines
Desktop devices	$	951	$	-	$	951
Equipment financing revenue		49		-		49
Telecommunications services		5,136		-		5,136
Fees, commissions, and other, recognized over time		399		-		399
One time fees, commissions and other		228		-		228
Website hosting services		-		298		298
Website management services and other		-		45		45
	$	6,763	$	343	$	7,106
Timing of revenue recognition
Products and fees recognized at a point in time	$	1,179	$	-	$	1,179
Services and fees transferred over time		5,584		343		5,927
	$	6,763	$	343	$	7,106

Six Months Ended June 30, 2018
(In thousands)
	Cloud Telecommunications Segment		Web Services Segment		Total Reportable Segments
Major products/services lines
Desktop devices	$	803	$	-	$	803
Equipment financing revenue		59		-		59
Telecommunications services		4,169		-		4,169
Fees, commissions, and other, recognized over time		286		-		286
One time fees, commissions and other		35		-		35
Website hosting services		-		385		385
Website management services and other		-		48		48
	$	5,352	$	433	$	5,785
Timing of revenue recognition
Products and fees recognized at a point in time	$	838	$	-	$	838
Services and fees transferred over time		4,514		433		4,947
	$	5,352	$	433	$	5,785

Contract balances

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers.

(In thousands)	June 30, 2019		December 31, 2018
Receivables, which are included in Trade receivables, net of allowance for doubtful accounts	$	524	$	429
Contract assets		18		12
Contract liabilities		1,179		1,063

Significant changes in the contract assets and the contract liabilities balances during the period are as follows:

	Six Months Ended						For the Year Ended
(In thousands)	June 30, 2019						December 31, 2018
	Contract Assets			Contract Liabilities			Contract Assets			Contract Liabilities
Revenue recognized that was included in the contract liability balance at the beginning of the period	$	-		$	(760	)	$	-		$	(837	)
Increase due to cash received, excluding amounts recognized as revenue during the period		-			876			-			912
Transferred to receivables from contract assets recognized at the beginning of the period		(3	)		-			(2	)		-
Increase due to additional unamortized discounts		9			-			11			-

Transaction price allocated to the remaining performance obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period (in thousands):

	2019		2020		2021		2022		2023		2024		Total
Desktop devices	$	122		-		-		-		-		-	$	122
Telecommunications service	$	5,030		7,939		5,853		3,766		1,793		269	$	24,650

All consideration from contracts with customers is included in the amounts presented above.